FBLA Public Policy & Advocacy Practice Exam

Cutting taxes for consumers is considered a part of economic stimulus because it puts more money into the hands of individuals and families. When consumers have more disposable income, they are more likely to spend this money on goods and services. This increase in consumer spending can help stimulate demand within the economy, which can lead to greater production, business expansion, and potentially job creation. Tax cuts can be particularly effective in times of economic downturn, as they provide an immediate boost to financial resources, encouraging economic activity.

In contrast, actions like increasing the income tax rate, decreasing government spending, and implementing new tariffs would likely have a contractionary effect on the economy. Increasing taxes reduces the amount of money that individuals and businesses can spend, thereby dampening consumption. Decreasing government spending can lead to reduced public sector employment and less demand for goods and services, further slowing economic activity. Implementing new tariffs could raise the cost of imports, which typically results in higher prices for consumers, reducing their purchasing power and potentially leading to decreased spending overall. Thus, the action of cutting taxes aligns with strategies meant to invigorate economic growth and is a key tool in economic stimulus.